The Private Use of Credit Ratings: Evidence from Investment Mandates

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Keywords

Credit ratings •

investment mandates •

delegated asset management •

financial crisis

Investment mandates determine how more than $7tn of fixed income assets are managed by mutual funds in the US. Using textual analysis, we measure the use of credit ratings in fixed income mutual fund investment mandates. The use of ratings to classify which securities funds may invest in has increased, from a high initial level, over the past two decades.

Fixed income markets’ extensive and continued reliance on credit ratings either points to a lack of practically useful alternatives, a positive view of ratings by market participants, or inefficient contracting.

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